Pathetic May Unemployment Report – New Questions About US Economy by Gary D. Halbert
Unemployment Report – FORECASTS & TRENDS E-LETTER
by Gary D. Halbert
June 7, 2016
IN THIS ISSUE:
- May Unemployment Report Was an Unexpected Disaster
- Record 94.7 Million Americans Not in Workforce in May
- Fed Will Have to Rethink Plans For June or July Rate Hike
Unemployment Report – Overview
Economists around the world were stunned by last Friday’s unemployment report which showed that a paltry 38,000 new US jobs were created in May, a fraction of the 160,000 new jobs that were expected in the pre-report consensus. It was the fewest number of new jobs in almost six years, reflecting broad hiring cutbacks that raise new concerns about US growth.
Making matters worse, even though the headline unemployment rate fell from 5.0% to 4.7%, that was only because almost 500,000 Americans left the workforce last month, far more than expected. In addition to the May disappointment, the Labor Department revised down the number of new jobs created in March and April by 59,000.
If that weren’t enough, the report also noted that a record number of working-age Americans – almost 95 million – were not in the workforce in May. On almost every front, it was a terrible report. I’ll give you the details below.
Finally, Friday’s pathetic jobs report raises new questions about the Fed’s next move. As I have discussed in recent weeks, Fed officials including Chair Janet Yellen have been suggesting that the next hike in the Fed Funds rate would come this summer, either at the June or July policy meetings. But those plans may now be on hold once again. Let’s get started.
May Unemployment Report Was an Unexpected Disaster
US employers added the fewest number of workers in almost six years in May, reflecting broad hiring cutbacks that will almost certainly raise concerns about US growth and may prompt Federal Reserve policymakers to put off an increase in interest rates.
Last Friday’s unemployment report noted that only 38,000 new jobs were added last month, versus the pre-report consensus of 160,000 and the fewest since September 2010. The 38,000 new jobs in May compares to a revised 123,000 advance in April and 186,000 in March.
So the fact that only 38,000 new jobs were added is a huge negative surprise regarding the health of the US economy. The 38,000 increase in May was far less than even the most pessimistic forecast in the Bloomberg pre-report survey.
The headline jobless rate in May dropped to 4.7% from 5% in April, the lowest since November 2007, but that was because almost 500,000 Americans dropped out of the labor force or stopped looking for work in May alone. This is not good.
With so many Americans leaving the workforce last month, the labor force participation rate fell by 0.2% to 62.6%. The participation rate has declined by 0.4% over the past two months, offsetting gains seen in the 1Q.
“This was an unqualified dud of a jobs report,” said Curt Long, chief economist at the National Association of Federal Credit Unions, noting that “the unemployment rate fell, but for the wrong reason as labor-force participation declined for the second consecutive month.”
May’s disheartening jobs retreat was jaw-dropping in view of the labor market’s remarkably steady performance in recent years. Businesses added just 25,000 jobs in May, led by health care, while federal, state and local governments added only 13,000.
The near-paralysis in hiring was widespread. Manufacturers cut 10,000 jobs and mining and logging, which includes oil producers, chopped 11,000 jobs. Those sectors have been grappling with a weak global economy and low oil prices for nearly two years. But even construction, which generally has been benefiting from a recovering housing market, slashed 15,000 jobs.
And the number of temporary employees placed by staffing agencies declined by 21,000. That is a troubling sign because employers often lay off contingent (part-time) workers before cutting permanent full-time jobs.
Michael Gapen, chief US economist at Barclays, says the disappointing report raises the risk of recession in the next nine to 18 months, noting that past downturns have been preceded by a persistent drop in job gains below the recovery average.
Some analysts suggested that the Labor Department could revise the May jobs number higher along with the June jobs report to be released on July 8. Maybe so, but even if they double the 38,000 reported on Friday that would be only 76,000 which would still be well below the most pessimistic pre-report estimate. We’ll see.
Unemployment Report – Record 94.7 Million Americans Not in Workforce in May
According to the Labor Department, a record 94,708,000 Americans were not in the labor force in May – 664,000 more than in April. As noted above, this caused the labor force participation rate to fall to 62.6%, near its 38-year low and the second consecutive monthly decline.
When President Obama took office in January 2009 during the depths of the Great Recession, 80,529,000 Americans were not participating in the labor force. Since then, 14,179,000 more Americans have left the workforce – some of them retiring and some just quitting because they couldn’t find work.
Just last week at a political fundraiser in Elkhart, Indiana President Obama boasted: “By almost every economic measure, America is better off than when I came here at the beginning of my presidency. We cut unemployment in half, years before a lot of economists thought we would.”
As noted above, the unemployment rate in May dropped to 4.7%, less than half of its Obama-era high of 10% in October 2009. But the labor force participation rate has deteriorated over Obama’s two terms. Over 14 million have left the workforce since Obama took office.
When Obama took office in January 2009, shortly before the recession ended, the labor force participation rate was 65.7%. The following month, it reached an Obama-era high of 65.8%, and then spiraled down for the next seven years, hitting 62.4% in September 2015, its lowest point since 1977.
In May, according to the Labor Department, the nation’s civilian noninstitutional population (all people 16 or older who were not in the military or in a penal, mental or nursing institution) reached 253,174,000. Of those, 158,466,000 participated in the labor force by either holding a job or actively seeking one. That equals 62.6% of the 253,174,000 civilian noninstitutional population.
The Labor Department points to retirements among the aging Baby Boom generation as a key factor affecting the labor force participation rate. But the weak job market has caused other Americans to give up job-hunting in favor of staying home or going back to school.
The DOL counted 5,923,000 people in May as “persons who currently want a job,” up 130,000 from 5,793,000 in April.
Among the major worker groups, the unemployment rates for adult men (4.3%), adult women (4.2%), Whites (4.1%), and Hispanics (5.6%) declined in May. The rates for Blacks (8.2%), Asians (4.1%) and teenagers (16.0%), showed little or no change.
The number of long-term unemployed (those jobless for 27 weeks or more) declined by 178,000 to 1.9 million in May. These individuals accounted for 25.1% of the unemployed.
The number of persons employed part-time because they can’t find full-time